Govt May Continue GST Compensation Scheme Till 2025

The Union government plans to create a backstop facility for states to receive compensation for three additional years to implement the nationwide goods and services tax (GST) after the expiry of the first five years as mandated by the Constitution. This is aimed at ensuring that states grappling with a revenue shortfall after the implementation of the GST regime do not face a sudden fiscal shock when the five-year transition period ends in 2022.

The backstop facility would help continue compensation through an annual transfer of the centre’s tax revenue to the states, for which the 15th Finance Commission would prepare a blueprint, two officials said. The recommendation will help states get the GST compensation till 2025, when this finance commission’s term ends.